Services

6. Group Executive Board: remune­ration and share/option ownership in 2017

This section is audited by the external auditor.

6.1 Performance in 2017

Consolidated net sales in 2017 increased by 3.5% to CHF 2,908.3 million. Total growth comprised organic growth in local currencies of 3.5%, a foreign currency effect of +1.2% and a divestment effect of -1.2%. As in previous years, one-off costs related to the Sanitec acquisition and integration had an impact on the results. Operating profit (EBIT) adjusted for these effects increased by 2.9% to CHF 706.1 million and the correspondingly adjusted EBIT margin came to 24.3%. Increased sales volumes and a positive product mix effect had a positive impact on the operating results, as did synergies from the Sanitec integration. In particular higher raw material prices, increased personnel expenses and depreciation had a negative impact. Adjusted net income rose by 3.5% to CHF 604.2 million, with an adjusted return on net sales of 20.8%. Adjusted earnings per share improved by 3.7% to CHF 16.43. The average Return on Invested Capital (ROIC) was 22.4% (prior year 21.5%).

To determine the variable cash remuneration (STI) of the members of the Group Ex­ecutive Board, the following Key Performance Indicators (KPI) are used: sales performance, EBIT and EPS compared with the previous year as well as ROIC. The achievement of qualitative individual targets is also taken into consideration. The degree of achievement varies by KPI, and the weighted average of all elements used to calculate the variable cash remuneration slightly exceeded the targets.

6.2 Remuneration awarded in 2017

The remuneration of the Group Executive Board amounted to TCHF 9,608 in 2017 (previous year TCHF 9,126). The remuneration of the CEO amounted to TCHF 2,401 in 2017 (previous year TCHF 2,287). The higher total remuneration in 2017 for the Group Executive Board compared to the previous year is the result of various factors:

Increasing effects:

Expansion of Group Executive Board by one member (as of 1 September 2016)

Selected base salary increases to align remuneration to the market

Selected higher option grants (LTI) to align remuneration to the market or due to promotion to Group Executive Board

Increase of MSPP options as a larger amount of variable remuneration was drawn in shares

One-off employer contribution to company pension funds due to reduction of pension conversion rate

Reducing effect:

Target achievement in the STI programme lower than in the previous year

At the 2016 General Meeting, the shareholders approved a maximum aggregate compensation amount of TCHF 9,950 for the Group Executive Board for the year 2017. The compensation paid for that period amounts to TCHF 9,608 and is therefore within the approved amount.

Further information on the remuneration awarded to the Group Executive Board for the business year 2017, compared with the maximum potential amount of remuneration, is provided with the invitation to the Ordinary General Meeting 2018.

The following table shows details of remuneration for 2017 and 2016:

2017

2016

C. BuhlCEO

Total

C. BuhlCEO

Total

CHF

CHF

CHF

CHF

Salary

- Fixed salary

861,809

3,449,744

791,804

3,145,644

- Variable salary1

516,250

2,013,879

709,550

2,776,122

thereof in shares in 20172

707,983

2,099,536

Shares/options

- Call options MSOP 2017/20163

749,955

2,475,927

574,986

2,123,866

- Call options MSPP 2017/20164

56,385

167,211

29,705

81,824

Non-cash benefits

- Private share of company vehicle5

7,056

48,978

7,056

45,040

Expenditure on pensions

- Pension plans and social insurance

206,8546

1,433,4896

171,254

937,049

- Contribution health/accident insurance

2,497

18,319

2,454

16,382

Total7

2,400,806

9,607,547

2,286,809

9,125,927

1 The amounts to be paid (current
year), respectively the amounts effectively paid (previous year) are shown. The payment of the variable
salary occurs in the following year. Members of the Group Executive Board are free to choose between a
payment in shares or in cash.

3 Call options on registered shares of the company with a par value of CHF 0.10 each,
issued
within the scope of the Management Share Option Programme (MSOP); 1 option entitles to purchase 1
registered
share at an exercise price of CHF 435.95 (previous year CHF 361.75); definitive acquisition of the
option (“vesting”) dependent on various conditions, 3-5-year blocking period (3 tranches at 33%). Market
value of CHF 39.87 (previous year CHF 31.42) determined using the binomial method.

4 Call options on registered shares of the company with a par value of CHF 0.10 each,
issued
within the scope of the Management Share Participation Programme (MSPP); 1
option entitles to purchase 1 registered share at an exercise price of CHF 435.95 (previous year CHF 361.75);
definitive acquisition of the option (“vesting”) dependent on various conditions, 1-4-year blocking
period
(4 tranches at 25%), market value of CHF 34.72 (previous year CHF 26.81) determined using the
binomial
method.

5 Valuation in accordance with the guidelines of the Swiss Federal Tax Administration FTA (0.8%
of the purchase cost per month).

6.3 Shareholdings of Group Executive Board

As of the end of 2017 and 2016, the Group Executive Board held the following shares in the company:

Maturity

Average
exercise
price
in CHF

C. BuhlCEO

R. IffCFO

M. Reinhard

E. Renfordt-Sasse

K. Spachmann

R. van Triest

M. Baumüller

Total

2017

Shareholdings Group Executive Board

Shares

6,212

32,840

2,500

2,452

12,407

200

2,850

59,461

Percentage voting rights shares

< 0.1%

< 0.1%

< 0.1%

< 0.1%

< 0.1%

< 0.1%

< 0.1%

0.16%

Call options*

End of vesting period:

Vested

2018–2023

306.01

7,474

9,172

3,783

4,779

3,236

10

2,922

31,376

2018

2021–2024

357.20

5,745

7,091

7,261

2,631

6,140

50

784

29,702

2019

2022–2026

382.28

11,302

7,484

7,989

4,074

6,647

2,596

697

40,789

2020

2023–2027

398.85

13,053

7,427

7,895

3,664

6,632

4,602

1,926

45,199

2021

2024–2027

398.85

12,776

7,299

7,770

3,567

6,554

4,592

1,878

44,436

2022

2027

435.95

6,270

3,176

3,314

1,504

2,926

2,006

1,504

20,700

Total options

56,620

41,649

38,012

20,219

32,135

13,856

9,711

212,202

Percentage potential share of
voting rights options

0.15%

0.11%

0.1%

< 0.1%

< 0.1%

< 0.1%

< 0.1%

0.57%

* Purchase ratio 1 share for 1 option

Maturity

Average
exercise
price
in CHF

C. BuhlCEO

R. IffCFO

M. Reinhard

E. Renfordt-Sasse

K. Spachmann

R. van Triest

M. Baumüller

Total

2016

Shareholdings Group Executive Board

Shares

4,588

31,812

2,500

2,336

8,691

40

1,343

51,310

Percentage voting rights shares

< 0.1%

< 0.1%

< 0.1%

< 0.1%

< 0.1%

< 0.1%

< 0.1%

0.14%

Call
options*

End of vesting period:

Vested

2017–2022

242.80

1,633

0

0

1,990

7,314

0

3,046

13,983

2017

2020–2023

306.01

5,841

9,172

9,308

2,789

8,013

10

995

36,128

2018

2021–2023

330.95

5,339

6,834

7,011

2,477

6,140

10

687

28,498

2019

2022–2026

355.45

10,896

7,227

7,739

3,920

6,647

2,556

600

39,585

2020

2023–2026

361.75

6,377

3,994

4,331

2,006

3,706

2,556

325

23,295

2021

2026

361.75

6,100

3,866

4,206

1,909

3,628

2,546

277

22,532

Total
options

36,186

31,093

32,595

15,091

35,448

7,678

5,930

164,021

Percentage potential share of
voting rights options

0.1%

< 0.1%

< 0.1%

< 0.1%

0.1%

< 0.1%

< 0.1%

0.44%

* Purchase ratio 1 share for 1 option

As of 31 December 2017, there were no outstanding loans or credits between the company and the members of the Group Executive Board, closely related parties or former members of the Group Executive Board.